Wise Loans vs. Bad Debt

Wise Loans vs. Bad Debt

There are many arguments that come out about debt, that not having a debt or a loan is the right way to have healthy finances, but borrowing money or taking debt is the only way that many people can buy expensive items such as houses and car. Such loans are usually justified and bring value to the person who takes the debt. Although it is easy to distinguish between good debt and bad debt, in determining it more often it involves more in-depth analysis of certain conditions.

Before borrowing money or taking debt, it would be nice to know the difference between wise loans and bad debt. There are a number of things that are feasible to take on debt, while others can make you in a big financial mess. This is how to distinguish it.

Wisdom Loans

Wise loans are often used to help manage finances and build wealth in the long run and make financial sense.

Examples of wise loans include a home loan where you can afford to repay the loan, as well as an education loan for students which includes long-term investments and can solve major problems for parents.

One of the smartest ways to use money is to borrow money to invest in assets, such as property or stocks that can generate income and have a value that continues to increase, while the interest charged to debt can be deducted from taxes.

Bad Debt

Examples of bad debt include money you borrow through credit cards and personal loans to pay for daily expenses, vacations, or assets such as cars that tend to decrease in value.

Maybe some people argue that a loan even for your home loan can be considered a bad debt compared to loans for investment property. This happens because, when your home tends to increase in value, your home does not generate income, while the interest on loans is not tax deductible. On the other hand, when you sell your house, it will not be subject to capital gains tax that is imposed on investment.